TATA STEEL & BHUSHAN STEEL Ltd.

GROUP - 4
What is Merger ?

A merger is the combination of two companies into one by either

closing the old entities into one new entity or by one company
absorbing the other.
 A merger is a financial activity that is undertaken in a large variety of
industries: Healthcare, Financial Institutions, Private Investments,
Industrials, and many more.
There are Two main types of mergers: Horizontal and Vertical.
MERGER

+ =
Type of
Merger
Horizontal Mergers:
It occur when two businesses in the
same industry combine into one.
This type of combination can cause
anti-trust issues depending on the
industry.
In this case both the companies,
TATA Steel and Bhushan Steel Ltd
are into Steel (Metal) Industry.
 TATA STEEL V/S JSW
• 2018 New Highlight
• National company law Tribunal (NCLT)
• CIRP process prescribed under the IBC Code
• Bankrupt company (Insolvency and Bankruptcy code IBC )
• TATA BID Rs-35,000 Cr
• JSW BID Rs- 29,700 Cr
 • In a general sense & in the context of doing
Why only business in India, it is always in the best interest
of a corporate to acquire an asset rather than
build it from scratch, especially for a greenfield
BSL project.

Company & • 16 November 2021Tata Steel BSL has fixed 16

November 2021 as the record date for he

When ? purpose of determining the shareholders of Tata

Steel BSL who shall be entitled to receive fully
paid-up equity shares of Tata Steel in the share
exchange ratio as per the Scheme of
Amalgamation.

• This means, for every 15 shares of Tata Steel BSL,

the investor will receive 1 share of Tata Steel.
Following are the major hurdles a company may face:

• Complex and expensive land acquisition cost, further court litigations.

Bureaucratic delays, escalation of project cost, and in some case leading to
complete scrapping of the project.
• Timeline of 3.5 to 6 years before the start of production.

So it’s in the best interest to acquire an asset, and that too when it is being
sold in band of 60–80% of the actual book cost.
Problem Faced By The Company?
Following the successful resolution of insolvent Bhushan Steel, Tata Steel
induced a portion of capital in the form of equity on taking over.
Lenders, too, converted some of their Debt to Equity. This led to significant
dilution of public shareholding in the erstwhile Bhushan Steel (now, Tata
Steel BSL).
 
Tata Steel is looking to double its
capacity by FY22 to 23 MT, and
Bhushan Steel (5MT) being major
producer of Flat products, Tata Steel
is poised to garner 50% market share
in this segment with its acquisition,
especially Northern region.
 Following other points that put Tata
Steel in a favorable position is:

• It’s very difficult to come up with a greenfield project at a strategic location, close to the current operational area
of Tata Steel. It has a definite advantage and synergies in raw material linkage, procurement & marketing.
• The commodity cycle for steel is in upsurge, and Tata Steel is looking to cash this opportunity before the
downturn, and definitely hedge some part against the higher cost of acquisition.
• The current EBIDTA or operating profit per tonne for Bhushan Steel is Rs. 7800, with 58% capacity utilization. Tata
Steel will definitely look to increase it to Rs. 10,000 in near term by increasing the capacity utilization, efficiency,
and ore from its own mines. (Tata Steel’s operating profit was Rs. 14000 per tonne in Dec quarter).
• Additionally current location of Bhushan Steel, Ghaziabad & Khopoli in Maharashtra, is close to Auto hub of Pune
& Gujarat, meanwhile Ghaziabad plant close to auto major Maruti Udyog, gives access to Northern market.
Following info-graphic from Economic Times may further be helpful in understanding .
This will definitely increase the debt on the balance sheet of
Tata Steel to 1 lac crore, but it is hopeful that synergies
created due to acquisition will be fruitful in the long run.